UNITED STATES TRADE & EMPLOYMENT PROPOSALS

A. GENERAL CONSIDERATIONS

1. The United States Government has submitted to the United
Nations a programme for international economic collaboration which
includes Proposals for the Expansion of World Trade and
Employment, the Bretton Woods Agreement to set up an International
Monetary Fund and a Bank for Reconstruction and Development, and
the Anglo-American Financial Agreement and Lend-Lease Settlement.

2. This programme should be examined as a whole before decisions
are made on individual proposals.

The Objective of multilateral Trade
3. The main objective of the programme is to restore as far as
possible 'multilateral' trading conditions throughout the world-
that is, conditions in which countries do not seek to direct their
trade towards particular countries or groups of countries.

4. Especially during and after the World Depression, countries
sought economic and military security through regional tariff
preferences (e.g. Ottawa Agreements [2]), and special barter and
exchange arrangements (e.g. Germany, after 1932). These
arrangements diverted trade from its 'natural' channels to obtain
exclusive advantages for the countries adopting them.

The Objective of Reducing Trade Barriers
5. A second objective is to reduce barriers to world trade and
thus, the U.S. believe, encourage the use of resources in
accordance with comparative efficiencies of production instead of
seeking to influence their use by national economic policies. The
measures contemplated include drastic reduction of tariffs,
prevention of exchange fluctuations, stabilisation of commodity
prices, removal of export subsidies, prevention of restrictive
business practices, strict conditions on the use of quantitative
restrictions and simplification of Customs formalities.

6. The United States programme thus aims at a multi-lateral system
of world trade, and at limiting 'economic nationalism'. These
limitations will reduce participating countries' sovereignty in
economic policy, but the U.S. Government claims that countries
could expect a higher average standard of living, gained by a more
effective use of the world's resources.

Prospects for Australia
7. Australia can expect both advantages and disadvantages from the
adoption of the U.S. programme. The balance between these
advantages and disadvantages will depend primarily upon the
conditions of world trade in which the programme operates. If for
instance, there is a high and stable level of demand for
internationally traded commodities then the balance is likely to
be favourable.

8. Australia's trade is essentially 'multilateral', i.e., we sell
more to certain countries than we buy and spend the proceeds on
goods from other countries, to which we may export little.

Australia's exports suffered in the 'thirties because some
countries from whom we purchased little sought to balance their
trade with Australia by buying less. The limitation of restraints
on multilateral trade, therefore, would assist Australian exports
of those commodities in the production of which we have
comparative advantages, particularly wool and wheat. Australian
exports of foodstuffs and raw materials would also benefit from
the effect of the measures on general consumption levels. Provided
that the general level of international demand remains
satisfactory, multilateral trade would lead to greater prosperity
for these industries and consequently make possible a higher
standard of living in Australia.

9. Similarly, any lessening of economic nationalism in other
countries would assist Australian exports. This would apply not
merely to primary products, but also promote exports of selected
lines of manufactured products. Wartime increases in costs of
U.S.A. and U.K. have probably been such as to increase Australian
competitive advantages in manufactured products.

10. Disadvantages of the American programme for expanding
international trade derive mainly from the possibility of their
operating in adverse world economic conditions. Thus, for
instance, an undertaking to refrain from discriminating practices
would, in the event of a serious world depression, prevent us
making mutually advantageous arrangements with other countries
determined to maintain full employment. Similarly, the reduction
of trade barriers might prevent us from using trade restrictions
to defend domestic employment and industrial development against
unfavourable economic conditions.

11. Furthermore, a programme designed to prevent trade being
diverted from its 'natural' channels tends to give advantages to
established industries in already developed countries. It is
difficult for new producers to overcome the advantages of
established production and trade connections. This may retard the
development of new resources and the raising of productivity and
might therefore check the expansion of world trade which
accompanies rising productivity and standards of living.

12. Provided international demand can be maintained we can expect
real benefits from a freer multilateral system. The American
proposals show a considerable advance towards the Australian view
that the volume of world trade is largely dependent on the
domestic economic conditions in the participating countries,
particularly the major industrial and trading countries of the
world. Fully to meet our views, however, the American proposals
need strengthening. If this can be achieved and the proposals
successfully implemented, the effects on Australian employment and
living standards would be beneficial.

Regional Systems
13. In view of the possible disadvantages of the American
multilateral proposals, it might have been considered desirable to
join with the United Kingdom and other like-minded nations in a
more limited 'regional' trading system, based on common objectives
of full employment and rising living standards. Our willingness to
consider this alternative was made plain to the United Kingdom
during the recent negotiations concerning Financial Aid and the
Lease-Lend Settlement.

14. This alternative, however, was not acceptable to the United
Kingdom. Refusal of financial aid would have meant continued
'austerity' and would probably have led to the abandonment of
plans for the international economic collaboration agreed to at
San Francisco. A 'regional' solution of world economic problems
cannot now be considered as a practical alternative.

Non-participation
15. It is difficult to assess what would be the position of
Australia if she remained outside while U.S. and U.K., and the
majority of the United Nations participated in the U.S. programme
of collaboration. From the 'Explanatory Outline' which accompanied
the American, invitation to the Conference [3], it appears certain
that members of the Organisation will at least be asked to
withhold benefits from countries failing to adhere to the
agreement. It seems unlikely that we could escape considerable
losses from the resulting 'isolation'.

16. Furthermore, we cannot ignore international political
considerations. In particular, by our signature at San Francisco
of the Charter of the United Nations Organisation, we are
committed to seeking political and military security through
international collaboration. Similarly, in supporting the
establishment of the Economic and Social Council we have accepted
international collaboration in economic and social matters.

17. Furthermore, by our participation in the Mutual Aid
Agreements, we are committed by Article VII of those Agreements to
'agreed action' directed to the reduction of trade barriers, the
elimination of discriminatory treatment in trade and the expansion
of employment, production and consumption.

18. It seems most probable, therefore, that, when the complete
picture presents itself at the forthcoming Conference on Trade and
Employment, we shall find that the most favourable conditions for
Australian economic life and international trade can be built
within a freer multilateral system. Consequently, Australian
participation in a system of international economic collaboration
seems the most likely outcome of these discussions in which we
shall take a full and active part.

19. This being so, it would appear the most appropriate course for
Australia to follow would be to seek to modify certain sections of
the American proposals so that Australia will be able to
participate with reasonable hope that there will be a balance of
advantages to Australia from such participation.

B. SPECIFIC PROPOSALS

20. Throughout the international economic discussions during the
past three years, the Australian Government has emphasised the
importance of positive measures to expand world trade and pointed
out that these are relatively more important than measures merely
to modify restrictions.

21 It has been the Australian view that the major factors keeping
international trade small have been
(1) Loss of income resulting from unemployment and idle resources;

(2) The failure by individual countries to use to the full the
international resources at their disposal;

(3) The low level of productivity and therefore of incomes in
underdeveloped parts of the world.

The American proposals require strengthening to deal adequately
with these factors.

22. The American proposals place great emphasis on measures to
lessen restrictions on international trade. Particularly when
considered together with the Bretton Woods proposals for an
international monetary fund, they therefore involve some
limitations on the freedom of member governments in relation to
commercial and trade policy.

23. The chief limitations suggested on freedom of action which
appear likely to affect Australian policies of full employment and
industrial development appear to be the following-
(a) Import Control. The right to control imports when the balance
of payments is believed to be threatened would be subject to
certain 'criteria and requirements'.

(b) Industrial Protection. There is no recognition of protection
as a legitimate means of stimulating industrial development and
the diversification of the economy. Furthermore, some duties are
likely to be 'bound' under trade agreements and subsequent
increases precluded, and some restrictions may be imposed on the
use of subsidies for protective purposes. The proposals
undoubtedly call for some readjustment of Australian industry,
both primary and secondary. This needs to be kept within
manageable limits and with planned diversion to other lines of
production. In some industries, tariff adjustments which we will
be under pressure to make will need to be offset by greater
relative efficiency in Australian production.

(c) Stabilisation of Primary Products. Measures such as the
Australian 'home price' system [4] may be questioned.

24. it may be that these aspects of the proposals are designed
primarily to exclude the more extravagant forms of economic
nationalism and will not in fact prove unduly restrictive on
Australia. However, they should be carefully watched to ensure
that the agreements do not hamper Australian domestic policy or
prevent adequate defensive measures should world economic
conditions at any time become unfavourable.

25. These limitations fall also on the freedom of action of other
countries and may therefore affect their trading relations with
Australia either favourably or unfavourably to Australian
interests. on the other hand Australia may expect to benefit
substantially from the general stimulus to demand for primary
products which would arise out of a widespread reduction in
tariffs designed to increase exports from manufacturing countries.

It is moreover a big advantage that in the review of subsidies,
the subsidy schemes not only of other large exporting countries,
but also of the importing countries, should be brought into
question. It is particularly important to Australia that the
subsidy arrangements of the importing countries should be
reviewed.

26. The risks involved in accepting the suggested limitations of
our freedom of action depend largely upon the success of the
positive measures to expand world trade. For instance, if-
(a) high and stable levels of employment and production are
maintained in the main industrial and trading countries,
(b) there is a rapid development of undeveloped countries,
(c) major countries such as U.S.A. spend or invest abroad to the
limit of their capacity, it is unlikely that the limitations on
our freedom of action embodied in the proposals would prove
irksome, and the benefits to our exports would be considerable.

if, however, these conditions are not fulfilled, it may be
necessary for Australia to take prompt and effective action to
protect her domestic economic situation. In these circumstances
much would depend upon the skilful and sympathetic administration
of the trade and monetary organizations.

C. PROCEDURE AND TIMETABLE

27. The United States Government published the proposals in
November 1945 and the United Kingdom has subscribed to them as a
basis for discussion. It is intended that the United Nations
Organization shall call a World Conference to consider the
establishment of an International Trade Organization. The U.S.

invitation received by the Government which Cabinet decided to
accept (see Agendum No.1001A), was to a preliminary meeting only.

The purpose of this preliminary meeting is to:

(a) Negotiate, for the consideration of the proposed conference,
concrete arrangements for the relaxation of tariffs and trade
barriers of all kinds which would command the support of
governments attending the conference; and
(b) consult, and to reach such preliminary understandings as may
be practicable with regard to other topics on the proposed agenda
for the conference referred to above.

28. It is clearly understood by the main parties concerned that
these preliminary negotiations will be preceded by discussions in
London between representatives of British Commonwealth countries.

At these discussions all the important matters of principle
involved as well as the details of the new re-alignment of trade
will be reviewed. United States officials regard these discussions
as an essential preliminary step.

29. The time-table contained in the United States invitation named
March or April, 1946, for the beginning of the preliminary
negotiations, to be followed by a World Conference in the middle
of 1946. The latest informal advices received however, indicate
that the timetable will probably be as follows:

Late April or May. Preparatory Commonwealth discussions in London.

June. Preliminary international negotiations, probably in London.

Autumn. International Trade & Employment Conference.

Conclusions and Recommendations
30. It is recommended-
(1) That Australia should take an active part in the forthcoming
international discussions on trade and employment, with a view to
contributing to a successful conclusion;

(2) That the Delegation should be informed that, provided
satisfactory agreement is reached in the negotiations, Australia
is prepared to join the International Trade Organization; but that
this decision should not be made public and should be subject to
review when the work of the Trade & Employment Conference is
nearing completion;

(3) That they should seek to have the American proposals amended
and expanded to ensure-
(a) that international collaboration is directed to maintaining
satisfactory economic conditions throughout the world,
particularly to promote approximately full employment in the major
industrial countries of the world;

(b) that the operation of the system actively promotes the
development of new forms of production and higher levels of
productivity in relatively under-developed countries; (c) that the
agreement permits the use of defensive measures in economic
emergencies.

(4) That with this end in view the Sub-Committee has requested
Departments to prepare appropriate amendments of the American
proposals and a brief analysis of the amended proposals bringing
out the Australian point of view.

(5) That the attached list of requests (see Appendix 'A') be
presented informally to the Government of the United States as
requested to enable them to complete formalities in regard to
their Trade Agreement legislation, on the understanding that the
list will be subject to subsequent amendment.

(6) That when the above list is presented a request be made for a
similar list of proposed U.S. requests upon the Australian
Government. [5]

CABINET SUB COMMITTEE R. V. KEANE,
ON TRADE AND EMPLOY- MINISTER FOR TRADE & CUSTOMS.

MENT CONFERENCE W. J. SCULLY,
MINISTER FOR COMMERCE & AGRICULTURE.

J. J. DEDMAN,
MINISTER FOR POST WAR RECONSTRUCTION.